Both the European Securities and Markets Authority (ESMA) and the Luxembourg financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), are closely monitoring the COVID-19 situation and have issued recommendations for fund managers.
Facilitate the possibility to work remotely
The CSSF recently issued a statement emphasizing that financial sector professionals should take reasonable and appropriate measures to ensure the safety of their staff. It is therefore acceptable, as a precautionary measure, to allow employees to work remotely from home, provided IT security can be ensured.
For more information on this topic, please see the following articles:
Risk management: carry out stress tests and review business continuity plans
In its COVID-19 action recommendation of 11 March 2020, ESMA recommends that fund managers “continue to apply the requirements on risk management and react accordingly”.
In this regard, the CSSF further emphasises that, if required, companies must activate their business continuity plan and, if necessary, be prepared to use alternative production facilities within or outside the Grand Duchy of Luxembourg. The CSSF’s prior authorisation is not required to do so.
Many financial sector professionals have already reviewed or are in the process of reviewing their business continuity policy and performing IT system checks aimed at ensuring, in the event of an emergency, the preservation of essential data and functions, the maintenance of services and activities and, where applicable, the timely recovery of such data and functions and the timely resumption of services and activities.
For more information on this topic, please read Data Protection and IT: Think about the privacy of your employees.
Verify compliance with own funds requirements
The AIFM and UCITS legislation requires that fund managers hold either professional indemnity insurance or additional own funds to be able to cover potential losses, such as those arising from business disruption. In the case of insurance, it is recommended to check if the policy would cover a significant disruption resulting from the COVID-19 outbreak.
With respect to the actions to be taken by insurance companies, please see Insurance: Take actions at several levels.
Adapt disclosure & reporting requirements
ESMA recommends that all issuers disclose, as soon as possible, any relevant significant information concerning the impact of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation.
Furthermore, ESMA stresses that issuers “should provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures”.
For additional information on disclosure requirements, please see Corporate Governance: Combining transparency, responsibility and control.
Hold board and shareholder meetings by electronic means of communication
For more information on this topic, please read How to Continue Good Corporate Practice.
For contracts governed by Luxembourg law, the parties may wish to consider if the COVID-19 outbreak has rendered the obligation impossible to fulfil and could thus qualify as an event of force majeure within the meaning of the Luxembourg Civil Code.
For more information on this topic, please see Contracts and Commercial Litigation: Covid-19 as an unforeseeable event and/or a material adverse change.
Keep an eye out for new opportunities
A disruptive event can give rise to certain opportunities. Portfolio companies could be affected by underperforming production lines, for instance, while fund managers with substantial liquid assets under management could be affected in the short term by capital markets conditions. The present circumstances could also give rise to refinancing and restructuring opportunities for lending institutions and potentially cheaper prospective assets for asset managers.
With respect to restructuring and insolvency, please see Financial Restructuring & Insolvency: Diagnose the risks and challenges.
Compliments of NautaDutilh – a member of the EACCNY.